Kotak India Growth Fund Series 4

Transcription

1 SCHEME INFORMATION DOCUMENT (SID) Kotak India Growth Fund Series 4 Multicap Fund - A 36 months close ended equity scheme investing across large cap, midcap and small cap stocks This product is suitable for investors who are seeking*: Long term capital growth Investment in equity and equity related securities without any market capitalisation and sector bias Units at Rs. 10 each during the New Fund Offer New Fund Offer Opens on: January 29, 2018 New Fund Offer Closes on: February 12, 2018 Riskometer Moderately Low Moderate Moderately High Low High LOW Investors understand that their principal will be at moderately high risk HIGH *Investors should consult their financial advisers if in doubt about whether the product is suitable for them. Name of Mutual Fund Name of Asset Management Company Name of Trustee Company Registered Address of the Companies Corporate Office of Asset Management Company Website Kotak Mahindra Mutual Fund Kotak Mahindra Asset Management Company Ltd. Kotak Mahindra Trustee Company Ltd. 27 BKC, C-27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai BKC, 2nd Floor, Plot no. C/12, G Block, Bandra Kurla Complex, Bandra East, Mumbai assetmanagement.kotak.com The particulars of the Scheme have been prepared in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations 1996, (herein after referred to as SEBI (MF) Regulations) as amended till date, and filed with SEBI, along with a Due Diligence Certificate from the AMC. The units being offered for public subscription have not been approved or recommended by SEBI nor has SEBI certified the accuracy or adequacy of the Scheme Information Document. Bombay Stock Exchange Ltd. ("the Exchange") has given vide its letter no. DCS/IPO/AA/MF/IP/367/ dated August 17, 2017 permission to Kotak Mahindra Mutual Fund to use the Exchange's name in this SID as one of the Stock Exchanges on which this Mutual Fund's Unit are proposed to be listed. The Exchange has scrutinised this SID for its limited internal purpose of deciding on the matter of granting the aforesaid permission to Kotak Mahindra Mutual Fund. The Exchange does not in any manner:- (i) (i) warrant, certify or endorse the correctness or completeness of any of the contents of this SID; or (ii) warrant that this scheme's unit will be listed or will continue to be listed on the Exchange; or (iii) take any responsibility for the financial or other soundness of this Mutual Fund, its promoters, its management or any scheme or project of this Mutual Fund; and it should not for any reason be deemed or construed that this SID has been cleared or approved by the Exchange. Every person who desires to apply for or otherwise acquires any unit of Kotak India Growth Fund Series 4 of this Mutual Fund may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against the Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/ acquisition whether by reason of anything stated or omitted to be stated herein or for any other reason whatsoever The Scheme Information Document sets forth concisely the information about the scheme that a prospective investor ought to know before investing. Before investing, investors should also ascertain about any further changes to this Scheme Information Document after the date of this Document from the Mutual Fund / Investor Service Centres / Website / Distributors or Brokers. The investors are advised to refer to the Statement of Additional Information (SAI) for details of Kotak Mahindra Mutual Fund, Tax and Legal issues and general information on assetmanagement.kotak.com SAI is incorporated by reference (is legally a part of the Scheme Information Document). For a free copy of the current SAI, please contact your nearest Investor Service Centre or log on to our website, assetmanagement.kotak.com The Scheme Information Document should be read in conjunction with the SAI and not in isolation. This Scheme Information Document is dated January 15, 2018

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3 TABLE OF CONTENTS I. HIGHLIGHTS/SUMMARY OF THE SCHEME... 4 II. INTRODUCTION... 8 A. Risk Factors... 8 B. Requirement of Minimum Investors in the Scheme C. Definitions D. Special Consideration E. Due Diligence by the Asset Management Company III. INFORMATION ABOUT THE SCHEME A. Type of the scheme: B. What is the investment objective of the scheme? C. How will the scheme allocate its assets? E. What are the investment strategies? D. Where will the scheme invest? F. Fundamental attributes G. How will the scheme benchmark its performance? H. Who manages the scheme? I. What are the investment restrictions? J. How has the scheme performed? IV. UNITS AND OFFER A. New Fund Offer (NFO) B. Ongoing Offer Details C. Periodic Disclosures D. Computation of NAV V. FEES AND EXPENSES New Fund Offer (NFO) expenses Total Expense Ratio (TER) Load structure VI. RIGHTS OF UNITHOLDERS VII. PENALTIES, PENDING LITIGATION OR PROCEEDINGS, FINDINGS OF INSPECTIONS OR INVESTIGATIONS FOR WHICH ACTION MAY HAVE BEEN TAKEN OR IS IN THE PROCESS OF BEING TAKEN BY ANY REGULATORY AUTHORITY

4 I. HIGHLIGHTS/SUMMARY OF THE SCHEME Name of the Scheme Type of Scheme Duration of the Scheme Kotak India Growth Fund Series 4 Multicap Fund - A 36 months close ended equity scheme investing across large cap, midcap and small cap stocks The tenure of the scheme will be 36 months after the date of allotment of units. The scheme will be fully redeemed / wound up at the end of the tenure of the scheme. Investment Objective In case the Maturity date or payout date happens to be a non-business day then the applicable NAV for redemptions and switch out shall be calculated immediately on the next business day. The investment objective of the scheme is to generate capital appreciation from a diversified portfolio of equity & equity related instruments across market capitalisation and sectors. There is no assurance or guarantee that the investment objective of the scheme will be achieved. Liquidity Units of this scheme will be listed on Bombay Stock Exchange (BSE). Investors may sell their units in the stock exchange(s) on which these units are listed on all the trading days of the stock exchange. The units cannot be redeemed with KMMF until the maturity of the scheme. An investor can buy/sell Units on BSE and/or any other Stock Exchange(s) on which the Units are listed during the trading hours like any other publicly traded stock, until the date of issue of notice by the AMC for fixing the record date for determining the Unit holders whose name(s) appear on the list of beneficial owners as per the Depository s (NSDL/CDSL) records for the purpose of redemption of Units on maturity/final redemption date. The trading of Units on BSE and/or any other Stock Exchange(s) on which the Units are listed will automatically get suspended from the date of issuance of the said notice and also no offmarket trades shall be permitted by the Depositories. Benchmark The AMC may also list the scheme on any other stock exchanges in future. The performance of the Kotak India Growth Fund Series 4 will be measured against Nifty 200. The composition of the aforesaid benchmark is such that, it covers about 85% of the total market capitalization of NSE as on March 31, 2017 and it is most suited for comparing the performance of the scheme. NAV Information The Trustees reserve the right to change benchmark in future for measuring performance of the scheme. The first NAV of the scheme shall be declared within 5 working days from the date of allotment. The Mutual Fund shall update the Net asset value of the scheme on every Business day on AMFI s website and on the website of the Mutual Fund assetmanagement.kotak.com by 4

5 9.00 p.m. The NAVs will be published in two daily newspapers having nationwide circulation. Delay in uploading of NAV beyond 9.00 p.m. on every business day shall be explained in writing to AMFI. In case the NAVs are not available before the commencement of business hours on the following business day due to any reason, a press release for revised NAV shall be issued. Plans available The monthly portfolio of the Scheme shall be available in a user-friendly and downloadable format on the website viz. assetmanagement.kotak.com on or before the tenth day of succeeding month. There will be two plans under the Scheme namely, Regular Plan and Direct Plan Regular Plan: This Plan is for investors who wish to route their investment through any distributor. Direct Plan: This Plan is only for investors who purchase /subscribe Units in a Scheme directly with the Fund and is not available for investors who route their investments through a Distributor. The portfolio of both plans will be unsegregated. 5

6 Default Plan Investors subscribing under Direct Plan of a Scheme will have to indicate Direct Plan against the Scheme name in the application form as Kotak India Growth Fund Series 4 Direct Plan. Investors should also indicate Direct in the ARN column of the application form. If the application is received incomplete with respect to not selecting Regular/Direct Plan, the application will be processed as under: Scenario Broker Code mentioned by the investor Plan mentioned by the investor Default Plan to be captured 1 Not mentioned Not mentioned Direct Plan 2 Not mentioned Direct Direct Plan 3 Not mentioned Regular Direct Plan 4 Mentioned Direct Direct Plan 5 Direct Not Mentioned Direct Plan 6 Direct Regular Direct Plan 7 Mentioned Regular Regular Plan 8 Mentioned Not Mentioned Regular Plan Options available Choice of option Accepting of cash transactions Minimum Application Amount (during NFO) In cases of wrong/ invalid/ incomplete ARN codes mentioned on the application form, the application shall be processed under Regular Plan. The AMC shall contact and obtain the correct ARN code within 30 calendar days of the receipt of the application form from the investor/ distributor. In case, the correct code is not received within 30 calendar days, the AMC shall reprocess the transaction under Direct Plan from the date of application without any exit load. Each Plan under the Scheme will have two options namely Growth and Dividend Payout. The NAVs of the above options under the scheme will be different and separately declared; the portfolio of the investments remaining the same. If the applicant does not indicate the choice of Option in the Application Form, the Fund accepts the application as being for growth option under the respective plan. At present, applications for investing in scheme through cash are not accepted by Kotak AMC. The Asset Management Company is in process of implementing adequate systems and controls to accept Cash Investment in the Scheme. Information in this regard will be provided to Investors as and when the facility is made available. The acceptance of investment in cash shall however be subject to compliance with Income Tax regulations and disclosures required in that regard. Rs. 5,000/- and in multiples of Rs 10 for purchase and switch-ins. This clause is applicable only for purchases and switch in during the NFO. 6

7 Load Structure Listing Dematerialization Entry Load: In terms of SEBI Circular No. SEBI/IMD/CIR No. 4/168230/09 dated June 30, 2009, no entry load will be charged on purchase / additional purchase / switch-in. The upfront commission, if any, on investment made by the investor shall be paid by the investor directly to the Distributor, based on his assessment of various factors including the service rendered by the Distributor. Exit Load: Nil. The units of the scheme will be listed on BSE on allotment. The units of the scheme may also be listed on the other stock exchanges. Unit holders are given an option to hold the units in demat form in addition to account statement as per current practice. The Unitholders intending to hold/trade the units the units in Demat form are required to have a beneficiary account with the Depository Participant (DP) (registered with NSDL / CDSL) and will be required to indicate in the application the DP's name, DP ID Number and the beneficiary account number of the applicant with the DP. In case Unit holders do not provide their Demat Account details, an Account Statement shall be sent to them. Such unitholders will not be able to trade on the stock exchange. Cost of trading on the stock exchange Transfer of Units Applications Supported by Blocked Amount (ASBA) The Unitholders are requested to fill in their demat account details in the space provided for the same in Key Information Memorandum (KIM) and application forms. Unitholders will have to bear the cost of brokerage and other applicable statutory levies when the units are bought or sold on the stock exchange. Units held by way of an Account Statement cannot be transferred. Units held in Demat form are transferable in accordance with the provisions of The Depositories Act, SEBI (Depositories and Participants) Regulations, and Bye laws and business rules of depositories. Investors may apply through the ASBA facility during the NFO period of the Scheme by filling in the ASBA form and submitting the same to selected Self Certified Syndicate Banks (SCSBs) which are registered with SEBI for offering the ASBA facility, which in turn will block the amount in the account as per the authority contained in the ASBA form, and undertake other tasks as per the procedure specified therein. Investors are also requested to check with their respective Banks for details regarding application through ASBA mode. The list of SCSBs is available on SEBI website and also on the website of the stock exchanges. 7

8 II. INTRODUCTION A. Risk Factors Standard Risk Factors: Investment in Mutual Fund Units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal. As the price / value / interest rates of the securities in which the scheme invests fluctuates, the value of your investment in the scheme may go up or down. The value of investments may be affected, inter-alia, by changes in the market, interest rates, changes in credit rating, trading volumes, settlement periods and transfer procedures; the NAV is also exposed to Price/Interest- Rate Risk and Credit Risk and may be affected inter-alia, by government policy, volatility and liquidity in the money markets and pressure on the exchange rate of the rupee Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future performance of the scheme. Kotak India Growth Fund Series 4 is only the name of the scheme do(es) not in any manner indicate either the quality of the scheme or its future prospects and returns. The sponsor is not responsible or liable for any loss resulting from the operation of the scheme beyond the initial contribution of Rs.2,50,000 made by it towards setting up the Fund. The present scheme is not a guaranteed or assured return scheme. SPECIFIC RISKS IN DEBT MARKETS AND CAPITAL MARKETS Investments in Financial Instruments are faced with the following kinds of risks. I. Risks associated with Capital Markets or Equity Markets, (i.e. Markets in which Equity Shares or Equity oriented instruments are issued and traded) Price fluctuations and Volatility: Mutual Funds, like securities investments, are subject to market and other risks and there can be neither a guarantee against loss resulting from an investment in the Scheme nor any assurance that the objective of the Scheme will be achieved. The NAV of the Units issued under the Scheme can go up or down because of various factors that affect the capital market in general, such as, but not limited to, changes in interest rates, government policy and volatility in the capital markets. Pressure on the exchange rate of the Rupee may also affect security prices. Concentration / Sector Risk: When a Mutual Fund Scheme, by mandate, restricts its investments only to a particular sector; there arises a risk called concentration risk. If the sector, for any reason, fails to perform, the portfolio value will plummet and the Investment Manager will not be able to diversify the investment in any other sector. Investments under this scheme will be in a portfolio of diversified equity or equity related stocks spanning across a few selected sectors. Hence the concentration risks could be high. Liquidity Risks: Liquidity in Equity investments may be affected by trading volumes, settlement periods and transfer procedures. These factors may also affect the Scheme s ability to make intended purchases/sales, cause potential losses to the Scheme and result in the Scheme missing certain investment opportunities. These factors can also affect the time taken by KMMF for redemption of Units, which could be significant in the event of receipt of a very large number of redemption requests or very large value redemption requests. In view of this, redemption may be limited or suspended after approval from the Boards of Directors of the AMC and the Trustee, under certain circumstances as described in the Statement of Additional Information. 8

9 II. Risks associated with Debt / Money Markets (i.e. Markets in which Interest bearing Securities or Discounted Instruments are traded) a) Credit Risk: Securities carry a Credit risk of repayment of principal or interest by the borrower. This risk depends on micro-economic factors such as financial soundness and ability of the borrower as also macroeconomic factors such as Industry performance, Competition from Imports, Competitiveness of Exports, Input costs, Trade barriers, Favourability of Foreign Currency conversion rates, etc. Credit risks of most issuers of Debt securities are rated by Independent and professionally run rating agencies. Ratings of Credit issued by these agencies typically range from "AAA" (read as "Triple A" denoting "Highest Safety") to "D" (denoting "Default"), with about 6 distinct ratings between the two extremes. The highest credit rating (i.e. lowest credit risk) commands a low yield for the borrower. Conversely, the lowest credit rated borrower can raise funds at a relatively higher cost. On account of a higher credit risk for lower rated borrowers lenders prefer higher rated instruments further justifying the lower yields. b) Price-Risk or Interest-Rate Risk: From the perspective of coupon rates, Debt securities can be classified in two categories, i.e., Fixed Income bearing Securities and Floating Rate Securities. In Fixed Income Bearing Securities, the Coupon rate is determined at the time of investment and paid/received at the predetermined frequency. In the Floating Rate Securities, on the other hand, the coupon rate changes - 'floats' - with the underlying benchmark rate, e.g., MIBOR, 1 yr. Treasury Bill. Fixed Income Securities (such as Government Securities, bonds, debentures and money market instruments) where a fixed return is offered, run price-risk. Generally, when interest rates rise, prices of fixed income securities fall and when interest rates drop, the prices increase. The extent of fall or rise in the prices is a function of the existing coupon, the payment-frequency of such coupon, days to maturity and the increase or decrease in the level of interest rates. The prices of Government Securities (existing and new) will be influenced only by movement in interest rates in the financial system. Whereas, in the case of corporate or institutional fixed income securities, such as bonds or debentures, prices are influenced not only by the change in interest rates but also by credit rating of the security and liquidity thereof. However, debt securities in the scheme are intended to be held till maturity. For such securities held till maturity, there will not be any interest rate risk at the end of the tenure. Floating rate securities issued by a government (coupon linked to treasury bill benchmark or a real return inflation linked bond) have the least sensitivity to interest rate movements, as compared to other securities. The Government of India has already issued a few such securities and the Investment Manager believes that such securities may become available in future as well. These securities can play an important role in minimizing interest rate risk on a portfolio. c) Risk of Rating Migration: The following table illustrates the impact of change of rating (credit worthiness) on the price of a hypothetical AA rated security with a maturity period of 3 years, a coupon of 10.00% p.a. and a market value of Rs If it is downgraded to A category, which commands a market yield of, say, 11.00% p.a., its market value would drop to Rs (i.e. 2.47%) If the security is up-graded to AAA category which commands a market yield of, say, 9.00% p.a. its market value would increase 9

10 to Rs (i.e. by 2.51%). The figures shown in the table are only indicative and are intended to demonstrate how the price of a security can be affected by change in credit rating. Rating Yield (% p.a.) Market Value (Rs.) AA If upgraded to AAA If downgraded to A d) Basis Risk: During the life of floating rate security or a swap the underlying benchmark index may become less active and may not capture the actual movement in the interest rates or at times the benchmark may cease to exist. These types of events may result in loss of value in the portfolio. Where swaps are used to hedge an underlying fixed income security, basis risk could arise when the fixed income yield curve moves differently from that of the swap benchmark curve. e) Spread Risk: In a floating rate security the coupon is expressed in terms of a spread or mark up over the benchmark rate. However depending upon the market conditions the spreads may move adversely or favourably leading to fluctuation in NAV. f) Reinvestment Risk: Investments in fixed income securities may carry reinvestment risk as interest rates prevailing on the interest or maturity due dates may differ from the original coupon of the bond. Consequently the proceeds may get invested at a lower rate. g) Liquidity Risk: The corporate debt market is relatively illiquid vis-a- vis the government securities market. There could therefore be difficulties in exiting from corporate bonds in times of uncertainties. Liquidity in a scheme therefore may suffer. Even though the Government Securities market is more liquid compared to that of other debt instruments, on occasions, there could be difficulties in transacting in the market due to extreme volatility or unusual constriction in market volumes or on occasions when an unusually large transaction has to be put through. In view of this, redemption may be limited or suspended after approval from the Boards of Directors of the AMC and the Trustee, under certain circumstances as described in the Statement of Additional Information (SAI). III. Risk Associated with Investment in Derivatives Market Derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends upon the ability of the fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involve uncertainty and decision of fund manager may not always be profitable. No assurance can be given that the fund manager will be able to identify or execute such strategies. The risks associated with the use of derivatives are different from or possibly greater than, the risks associated with investing directly in securities and other traditional investment. Apart from the derivatives risk mentioned above there is a risk related to hedging for use of derivatives. It is that event of risk, which we were anticipating and hedged our position to mitigate it, but it does not happen. In such case, the cost incurred in hedging the position would be an avoidable 10

11 charge to the scheme net assets. For eg. If we buy long dated Nifty 50 put option to protect the stock portfolio against a downside during the tenure of the fund and the market doesn t come down but goes up. In that case, the scheme will lose the options premium paid. The risks associated with the use of derivatives are different from or possibly greater than the risks associated with investing directly in securities and other traditional investments. There are certain risks inherent in derivatives. These are: a) Basis Risk This risk arises when the derivative instrument used to hedge the underlying asset does not match the movement of the underlying being hedged for e.g. mismatch between the maturity date of the futures and the actual selling date of the asset. b) Limitations on upside: Derivatives when used as hedging tool can also limit the profits from a genuine investment transaction. c) Liquidity risk pertains to how saleable a security is in the market. All securities/instruments irrespective of whether they are equity, bonds or derivates may be exposed to liquidity risk (when the sellers outnumber buyers) which may impact returns while exiting opportunities. d) In case of investments in index futures, the risk would be the same as in the case of investments in a portfolio of shares representing an index. The extent of loss is the same as in the underlying stocks. In case futures are used for hedging a portfolio of stocks, which is different from the index stocks, the extent of loss could be more or less depending on the coefficient of variation of such portfolio with respect to the index; such coefficient is known as Beta. e) The risk related to hedging for use of derivatives, (apart from the derivatives risk mentioned above) is that event of risk, which we were anticipating and hedged our position to mitigate it, does not happen. In such case, the cost incurred in hedging the position would be a avoidable charge to the scheme net assets. g) Credit Risk The credit risk in derivative transaction is the risk that the counter party will default on its obligations and is generally low, as there is no exchange of principal amounts in a derivative transaction h) Interest Rate Risk interest rate is one of the variables while valuing derivatives such as futures & options. For example, with everything remaining constant, when interest rates increase, the price of Call option would increase. Thus, fluctuations in interest rates would result in volatility in the valuation of derivatives. i) Model Risk - A variety of models can be used to value options. Hence, the risk to the fund is that the fund manager buys a particular option using a particular valuation model (on the basis of which the option seems to be fairly priced or cheap) but the market is valuing it using another valuation model and according to which the option may be expensive. j) Price Risk - Despite the risk mitigation provided by various derivative instruments, there remains an inherent price risk which may result in losses exceeding actual underlying. k) Default Risk -This is the risk that losses will be incurred due to default by counter party. This is also known as credit risk or counterparty risk. 11

12 IV. Risk associated with Securities Lending: In the case of securities lending the additional risk is that there can be temporary illiquidity of the securities that are lent out and the Fund may not be able to sell such lent-out securities, resulting in an opportunity loss. In case of a default by counterparty, the loss to the Fund can be equivalent to the securities lent. V. Risk Associated with investments in ADRs/GDRs/offshore investments In respect of investments in ADRs/GDRs, the risks associated with underlying stocks remain the same except for the additional risk of the exchange rate of the Indian rupee vis-à- vis the currency in which ADRs/GDRs are denominated. In case of other offshore investments the risk shall be exchange rate of the Indian rupee vis-à-vis the currency in which such securities are issued and the country risk associated with an investment. Country risk would include events such as introduction of extraordinary exchange control, economic deterioration and bilateral conflict leading to immobilization of the assets. VI. Risk associated with Close Ended Scheme In a close ended scheme, redemption / repurchase shall not be allowed prior to maturity of the Scheme. Redemption will be allowed only on maturity of the Scheme. Scheme will mature at the end of the close ended period. For liquidity purpose units of the scheme are to be listed on Stock Exchange. Investors who wish to trade on the exchange and Investors wishing to exit / redeem before the scheduled maturity may do so through stock exchange mode where the scheme will be listed. For the units listed on the exchange it is possible that the market price at which the units are traded may be at a discount to the NAV of such Units and investor may not get the desired return. Also there may not be sufficient liquidity on the stock exchange for the investors to exit from the stock exchange mode. VII. Risk envisaged and mitigation measures for repo transactions: Credit risks could arise if the counterparty does not return the security as contracted or interest received by the counter party on due date. This risk is largely mitigated, as the choice of counterparties is largely restricted and their credit rating is taken into account before entering into such transactions. Also operational risks are lower as such trades are settled on a DVP basis. In the event of the scheme being unable to pay back the money to the counterparty as contracted, the counter party may dispose of the assets (as they have sufficient margin) and the net proceeds may be refunded to us. Thus the scheme may in remote cases suffer losses. This risk is normally mitigated by better cash flow planning to take care of such repayments. 12

13 B. Requirement of Minimum Investors in the Scheme The Scheme shall have a minimum of 20 investors and no single investor shall account for more than 25% of the corpus of the Scheme. These conditions will be complied with immediately after the close of the NFO itself i.e. at the time of allotment. In case of non-fulfillment with the condition of minimum 20 investors, the Scheme shall be wound up in accordance with Regulation 39 (2) (c) of SEBI (MF) Regulations automatically without any reference from SEBI. In case of non-fulfillment with the condition of 25% holding by a single investor on the date of allotment, the application to the extent of exposure in excess of the stipulated 25% limit would be liable to be rejected and the allotment would be effective only to the extent of 25% of the corpus collected. Consequently, such exposure over 25% limits will lead to refund within 5 business days of the date of closure of the New Fund Offer. 13

14 C. Definitions In this SID, the following words and expressions shall have the meaning specified below, unless the context otherwise requires: Applicable NAV Application Supported by Blocked Amount (ASBA) Asset Management Company or AMC or Investment Manager Business Day Unless stated otherwise in the SID, 'Applicable NAV' is the Net Asset Value at the close of a Business Day as of which the purchase or redemption is sought by an investor and determined by the Fund. An application containing an authorization given by the Investor to block the application money in his specified bank account towards the subscription of Units offered during the NFO of the Scheme. On intimation of allotment by CAMS to the banker the investors account shall be debited to the extent of the amount due thereon. Kotak Mahindra Asset Management Company Limited, the Asset Management Company incorporated under the Companies Act, 1956, and authorised by SEBI to act as Investment Manager to the Schemes of Kotak Mahindra Mutual Fund. A day other than: 1. Saturday and Sunday 2. a day on which Purchase and Redemption is suspended by the AMC 3. a day on which both the National Stock Exchange and the Bombay Stock Exchange are closed. 4. A day on which NSDL or CDSL is closed for the purpose of transfer of securities between depository (demat) accounts. Additionally, the days when the banks in any location where the AMC's Investor service center are located, are closed due to local holiday, such days will be treated as non business days at such centers for the purpose of accepting subscriptions. However if the Investor service center in such location is open on such local holidays, only redemption and switch request will be accepted at those centers provided it is a business day for the scheme. The AMC reserves the right to change the definition of Business Day. The AMC reserves the right to declare any day as a Business Day or otherwise at any or all ISCs. Controlling Branches (CBs) Custodian Depository Controlling Branches (CBs) of the SCSBs are the branches of the SCSBs acting as coordinating branch for the Registrar and Transfer Agent of Mutual Fund, AMC and the Stock Exchange(s) for the ASBA facility offered during the NFO period. Deutsche Bank AG, and Standard Chartered Bank acting as Custodian to the Scheme, or any other Custodian appointed by the Trustee. A depository as defined in the Depositories Act, 1996 (22 of 1996) and includes National Securities Depository Ltd 14

15 (NSDL) and Central Depository Services Ltd (CDSL). Designated Branches (DBs) Designated Branches (DBs) of the SCSBs are the branches of the SCSBs which shall collect the ASBA Application Forms duly filled by the Investors towards the subscription to the Units of the Scheme offered during the NFO. The list of these Designated Branches shall be available at the websites of SEBI and the stock exchanges. Entry Load The charge that is paid by an Investor when he invests an amount in the Scheme. Exit Load The charge that is paid by a Unitholder when he redeems Units from the Scheme. FII Foreign Institutional Investors, registered with SEBI under Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, Gilts / Government Securities / Securities created and issued by the Central Government and G.Secs / or State Government. IMA Investment Management Agreement dated 20th May 1996, entered into between the Fund (acting through the Trustee) and the AMC and as amended up to date, or as may be amended from time to time. Investor Service Centres or ISCs Designated branches of the AMC / other offices as may be designated by the AMC from time to time. Kotak India Growth Fund Series 4 Multicap Fund - A 36 months close ended equity scheme investing across large cap, midcap and small cap stocks Kotak Bank / Sponsor KMMF / Fund / Mutual Fund KMTCL / Trustee Maturity Date Money Market Instruments MIBOR Mutual Fund Regulations / Regulations NAV NRI Kotak Mahindra Bank Limited. Kotak Mahindra Mutual Fund, a trust set up under the provisions of The Indian Trusts Act, Kotak Mahindra Trustee Company Limited, a company set up under the Companies Act, 1956, and approved by SEBI to act as the Trustee for the Schemes of Kotak Mahindra Mutual Fund. The date on which all the units under the Scheme would be redeemed compulsorily and without any further act by the Unitholders at the Applicable NAV of that day. If this day is not a Business Day then the immediate following Business Day will be considered as the Maturity Date. Includes commercial papers, commercial bills, treasury bills, Government securities having an unexpired maturity upto one year, call or notice money, certificate of deposit, usance bills, and any other like instruments as specified by the Reserve Bank of India from time to time. The Mumbai Interbank Offered Rate published once every day by the National Stock Exchange and published twice every day by Reuters, as specifically applied to each contract. Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, as amended up to date, and such other regulations as may be in force from time to time. Net Asset Value of the Units of the Scheme (including the options thereunder) as calculated in the manner provided in this SID or as may be prescribed by Regulations from time to time. The NAV will be computed up to three decimal places. Non-Resident Indian and Person of Indian Origin as defined 15

16 in Foreign Exchange Management Act, Purchase Price Purchase Price, to an investor, of Units under the Scheme (including Options thereunder) computed in the manner indicated elsewhere in this SID. Redemption Price Redemption Price to an investor of Units under the Scheme (including Options thereunder) computed in the manner indicated elsewhere in this SID. Registrar Computer Age Management Services Private Limited ('CAMS'), acting as Registrar to the Scheme, or any other Registrar appointed by the AMC. Repo Sale of securities with simultaneous agreement to repurchase them at a later date. Reserve Bank of India / RBI Reserve Bank of India, established under the Reserve Bank of India Act, Reverse Repo Purchase of securities with a simultaneous agreement to sell them at a later date. Scheme Kotak India Growth Fund Series 4 Self Certified Syndicate Bank (SCSB) Standard Information Document (SID) Statement of Additional Information (SAI) SEBI Transaction Points Trust Deed Trust Fund Unit Unitholder Valuation Day Words and Expressions used in this SID and not defined All references to the Scheme would deem to include options thereunder unless specifically mentioned. Self Certified Syndicate Bank (SCSB) meansa bank registered with SEBI to offer the facility of applying through the ASBA facility. ASBAs can be accepted only by SCSBs, whose names appear in the list of SCSBs as displayed by SEBI on its website at This document issued by Kotak Mahindra Mutual Fund, offering for subscription of Units of the Scheme. It contains details of Kotak Mahindra Mutual Fund, its constitution, and certain tax, legal and general information. It is incorporated by reference (is legally a part of the Scheme Information Document) The Securities and Exchange Board of India. Centres designated by the Registrar, to accept investor transactions and scan them for handling by the nearest ISC. The Trust Deed entered into on 20th May 1996 between the Sponsor and the Trustee, as amended up to date, or as may be amended from time to time. The corpus of the Trust, Unit capital and all property belonging to and/or vested in the Trustee. The interest of the investors in the Scheme, which consists of each Unit representing one undivided share in the assets of the Scheme. A person who holds Unit(s) of the Scheme Business Day of the Scheme. Same meaning as in Trust Deed. 16

17 D. Special Consideration The Mutual Fund/ AMC and its Empanelled Brokers have not given and shall not give any indicative portfolio and indicative yield in any communication, in any manner whatsoever. Investors are advised not to rely on any communication regarding indicative yield / portfolio with regard to the Scheme. Trustees shall ensure that before launch of the scheme, in-principle approval for listing has been obtained from the stock exchange(s) and appropriate disclosures are made in the Scheme Information Document Nomination: For Unit holders holding units in demat form: The units will be issued in demat form through depository system. The unitholder will be entitled to the nomination facility offered by the depository with whom the unitholder has an account. Transmission: The units will be issued in demat form through depository system. The unitholder will be entitled to and subject to the transmission facility and procedure of the depository with whom the unitholder has an account. Inter option transfer: Transfer of units from growth to dividend or vice-versa will not be allowed, in case of units held under demat mode. Prospective investors should review/study SAI along with SID carefully and in its entirety and shall not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial/investment matters and are advised to consult their own professional advisor(s) as to the legal or any other requirements or restrictions relating to the subscriptions, gifting, acquisition, holding, disposal (sale, transfer, switch or redemption or conversion into money) of units and to the treatment of income (if any), capitalization, capital gains, any distribution, and other tax consequences relevant to their subscription, acquisition, holding, capitalization, disposal (sale, transfer, switch or redemption or conversion into money) of units within their jurisdiction/nationality, residence, domicile etc. or under the laws of any jurisdiction to which they or any managed Funds to be used to purchase/gift units are subject, and also to determine possible legal, tax, financial or other consequences of subscribing/gifting to, purchasing or holding units before making an application for units. Neither this SID and SAI, nor the units have been registered in any jurisdiction. The distribution of this SID in certain jurisdictions may be restricted or subject to registration and accordingly, any person who gets possession of this SID is required to inform themselves about, and to observe, any such restrictions. It is the responsibility of any persons in possession of this SID and any persons wishing to apply for units pursuant to this SID to inform themselves of and to observe, all applicable laws and Regulations of such relevant jurisdiction. Any changes in SEBI/RBI regulations and other applicable laws/regulations could have an effect on such investments and valuation thereof. Kotak Mahindra Mutual Fund/AMC has not authorised any person to give any information or make any representations, either oral or written, not stated in this SID in connection with issue of units under the Schemes. Prospective investors are advised not to rely upon any information or representations not incorporated in the SAI and SID as the same have not been authorised by the Fund or the AMC. Any purchase or redemption made by any person on the basis of statements or representations which are not contained in this SID or which are not consistent with the information contained herein shall be solely at the risk of the investor. The investor is requested to check the credentials of the individual, firm or other entity he/she is entrusting his/her application form and payment to, for any transaction with the Fund. The Fund shall not be responsible for any acts done by the intermediaries representing or purportedly representing such investor. If the units are held by any person in breach of the Regulations, law or requirements of any governmental, statutory authority including, without limitation, Exchange Control Regulations, the Fund may mandatorily redeem all the units of any Unit holder where the units are held by a Unit holder in breach of the same. The Trustee may further mandatorily redeem units of any Unit holder in the event it is found that the Unit holder has submitted information either in the application or otherwise that is false, misleading or incomplete. 17

18 E. Due Diligence by the Asset Management Company DUE DILIGENCE CERTIFICATE It is confirmed that: (i) The Scheme Information Document forwarded to SEBI is in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the guidelines and directives issued by SEBI from time to time. (ii) all legal requirements connected with the launching of the scheme as also the guidelines, instructions, etc., issued by the Government and any other competent authority in this behalf, have been duly complied with. (iii) the disclosures made in the Scheme Information Document are true, fair and adequate to enable the investors to make a well informed decision regarding investment in the proposed scheme. (iv) the intermediaries named in the Scheme Information Document and Statement of Additional Information are registered with SEBI and their registration is valid, as on date. For Kotak Mahindra Asset Management Company Limited Asset Management Company for Kotak Mahindra Mutual Fund Place: Mumbai Date: January 15, 2018 Jolly Bhatt Compliance Officer and Company Secretary 18

19 III. INFORMATION ABOUT THE SCHEME Kotak India Growth Fund Series 4 A. Type of the scheme: Multicap Fund - A 36 month close ended equity scheme investing across large cap, midcap and small cap stocks. B. What is the investment objective of the scheme? The investment objective of the scheme is to generate capital appreciation from a diversified portfolio of equity & equity related instruments across market capitalisation and sectors. There is no assurance or guarantee that the investment objective of the scheme will be achieved. C. How will the scheme allocate its assets? The asset allocation under the Scheme, under normal circumstances, will be as follows: Indicative Allocation Risk Profile Equity and Equity Related Securities of 80%-100% Medium to high large cap, midcap and small cap stocks$ Debt and Money Market Securities* 0%-20% Low $ Large cap companies, Midcap companies and Small cap Companies would be those companies as defined under SEBI circular no. SEBI/HO/IM/DF3/CIR/P/2017/114 dated October 6, 2017 and as may be amended by SEBI from time to time. Currently the large cap companies are the 1st-100th in terms of full market capitalization, midcap companies are the 101 st 250 th terms of full market capitalization and small cap companies are the 251 st company onwards in terms of capitalization. The list of stocks would be as per the list published by AMFI in accordance with the said circular. *The Scheme can invest in debt / money market instruments, having residual maturity upto the residual maturity of the Scheme. The Scheme may also use various derivative and hedging products from time to time in a manner permitted by SEBI to reduce the risk of the portfolio. Investments in derivatives - upto 50% of the net assets of the scheme. The cumulative gross exposure through equity, debt, money market instruments & derivative positions shall not exceed 100% of the net assets of the scheme as per SEBI circular No. Cir/ IMD/ DF/ 11/ 2010 dated August 18, The scheme may invest in derivatives, i.e. exchange traded options and futures. The equity derivatives strategy shall endeavor to provide the portfolio with participation in the underlying equity index. The participation rate would depend on the prevailing prices of the options. The total exposure related to option premium paid will not exceed 20% of the net assets of the Scheme. If due to market movements, the value of options appreciates/ depreciates resulting in breach of the limit of 20%, the fund manager may or may not rebalance the portfolio. However, if the fund manager sells the option before expiry of the contract, the reinvestment, if any, would be subject to the maximum 20% limit on options premium. 19

20 Subject to the Regulations and the applicable guidelines issued by SEBI, the Trustee may permit the Fund to engage in securities lending. The Fund can temporarily lend securities held with the Custodian to reputed counter-parties, for a fee, subject to prudent limits and controls for enhancing returns. The Fund is allowed to lend securities subject to a maximum of 20%, in aggregate, of the net assets of the Scheme and up to 20% of the net assets of the Scheme in the case of a single intermediary. Investments may be made in ADRs, GDRs or other foreign securities not exceeding 20% of the net assets scheme or as prescribed by SEBI from time to time. The Scheme may invest in ADRs, GDRs or other foreign securities in the manner allowed by SEBI, provided such investments are in conformity with the investment objectives of the Scheme and the prevailing guidelines and Regulations. The scheme shall not invest in securitized debt and shall not engage in short selling of securities. The Scheme is allowed to take exposure in repo of corporate debt securities. The scheme shall not participate in interest rate futures. Portfolio Rebalancing: Subject to SEBI (MF) Regulations, the asset allocation pattern indicated above may change from time to time, keeping in view market conditions, market opportunities, applicable regulations and political and economic factors. It must be clearly understood that the percentages stated above are only indicative and not absolute. These proportions may vary depending upon the perception of the AMC, the intention being at all times to seek to protect the interests of the Unit holders. Such changes in the investment pattern will be for short term and only for defensive considerations. In case of any deviation, the AMC will achieve a normal asset allocation pattern in a maximum period of 30 days. Where the portfolio is not rebalanced within 30 Days, justification for the same shall be placed before the Investment Committee and reasons for the same shall be recorded in writing. The Investment committee shall then decide on the course of action. However, at all times the portfolio will adhere to the overall investment objective of the Scheme. E. What are the investment strategies? The scheme aims to provide long term capital growth by investing in a well-diversified portfolio of equity and equity related securities across market capitalisation and sectors. The scheme shall invest in stocks of large cap, midcap and small cap companies. The portfolio construction will be based on thematic approach to bottom up stock picking using the Business, Management and valuation (BMV) model. The Fund Manager will evaluate the business environment that a company operates in, the capability of the management to execute and scale up the business and valuation of the company based on fundamentals like discounted cash flows and PE ratios, etc. The Close-ended nature of the scheme would allow the fund manager the flexibility to execute the investment strategy effectively over the tenure of the scheme and the above mentioned aspects will help the Fund Manager select companies/sectors which have good potential for long term growth prospects. The Scheme may also invest a part of its corpus in money market instruments and/or units of debt and/or liquid schemes of Kotak Mahindra Mutual Fund to meet liquidity requirements from time to time. The Scheme aims to invest in a portfolio of fixed income securities/debt instruments maturing on or before the maturity of the Scheme. 20

21 Apart from the above mentioned strategy, the fund is free to invest in any company which in the opinion of the fund manager may offer better return over the maturity profile of the fund. The Scheme may also use various derivatives and hedging products from time to time, as would be available and permitted by SEBI, in an attempt to protect the value of the portfolio, limit downside and enhance Unit holders interest. The scheme may invest upto 20% in Index options to hedge the portfolio against adverse market movements. The Scheme may also invest a part of its corpus in money market instruments and/or units of liquid schemes to meet liquidity requirements from time to time. Risk Control Measures (i) Risk Control Measures for investment strategy: The fund will comply with the prescribed SEBI limits on exposure. Risk is monitored and necessary action would be taken on the portfolio if required. Attribution analysis is done to monitor the under or over performance vis a vis the benchmark and the reasons for the same. (ii) Risk Mitigation measures for portfolio volatility: The overall volatility of the portfolio would be maintained in line with the objective of the scheme. The portfolio would be adequately diversified to mitigate volatility. Volatility would be monitored on with respect to the benchmark and peer set. (iii) Risk mitigation measures for managing liquidity: Since it is a close ended scheme, it would not require active liquidity management. Portfolio Turnover: The scheme has no specific target relating to turnover of securities. Being closed ended in nature, the turnover on account of purchase and redemptions is not expected. Turnover may arise only on account of calls taken by the fund manager on the equity component of the portfolio based on his assessment of the equity market, and on the debt side due to change in credit worthiness of credit ratings of securities and on account of investment opportunities. D. Where will the scheme invest? The amount collected under the scheme will be invested in debt and money market instruments and equity and equity related instruments. Subject to the Regulations, the amount collected under this scheme can be invested in any (but not exclusively) of the following securities/ debt instruments: a. Equity and Equity related instruments including convertible bonds and debentures and warrants carrying the right to obtain equity shares. b. Securities created and issued/guaranteed by the Central and State Governments and/or repos/reverse repos in such Government Securities as may be permitted by RBI (including but not limited to coupon bearing bonds, zero coupon bonds and treasury bills). c. Debt obligations of domestic Government agencies and statutory bodies, which may or may not carry a Central/State Government guarantee (including but not limited to Indian Government Bond, State Development Loans issued and serviced at the Public Debt Office, 21

22 Bonds issued by Central & State Government PSU s which are guaranteed by Central or State Governments) d. Corporate debt (of both public and private sector undertakings) including Non convertible debentures (including bonds) and non-convertible part of convertible securities. e. Obligations/ Term Deposits of banks (both public and private sector) and development financial institutions f. Money market instruments permitted by SEBI/RBI, having maturities of up to one year or in alternative investment for the call money market as may be provided by the RBI to meet the liquidity requirements g. Debentures h. Certificate of Deposits (CDs). i. Repo of corporate debt securities j. CBLO, Bills re-discounting, as may be permitted by SEBI from time to time. k. Derivative instruments like Interest Rate Swaps, Interest Rate Forwards, Forward Rate Agreements, stock options, Index options, Stock & Index futures/stock futures and such other derivative instruments permitted by SEBI/RBI. l. Any other domestic fixed income securities as permitted by SEBI / RBI from time to time. m. Any other instruments / securities, which in the opinion of the fund manager would suit the investment objective of the scheme subject to compliance with extant Regulations. The securities/debt instruments mentioned above could be listed or unlisted, secured or unsecured, rated and of varying maturities and other terms of issue. The securities may be acquired through Initial Public Offerings (IPOs), secondary market operations, private placement, rights offer or negotiated deals. The Scheme may also enter into repurchase and reverse repurchase obligations in all securities held by it as per guidelines/regulations applicable to such transactions. INVESTMENT IN DERIVATIVES Interest Rate Swap (IRS) IRS is a widely used derivative product in the financial markets to manage interest rate risk. A typical transaction is a contract to exchange streams of interest rate obligation/income on a notional principle amount with a counter party, usually a bank. The two interest streams are, fixed rate on one side and floating rate on the other. Example: Suppose the Fund holds a fixed rate bond of maturity 5 years carrying a fixed interest rate (coupon) of 6% p.a. payable half yearly. Such an investment runs the risk of depreciation if interest rates rise. To manage this risk, the Fund can enter into an IRS with another market participant, here the Fund contracts to pay fixed rate, say 5.25% p.a., and receive a floating rate (say overnight MIBOR). This transaction is done for a notional principal amount equal to the value of the investment. By such a contract a fixed rate income is offset by a fixed rate payment obligation leaving only a floating rate income stream. Thus, without actually investing in a floating rate asset, the Fund starts earning a floating rate income, reducing the risk of depreciation associated with the fixed rate investment. Following table summarises the cash flow streams: Original investment 6% p.a. Pay (Fixed rate) 5.25% p.a. (IRS) Receive (Floating rate) MIBOR Net Flow MIBOR % p.a. (*) * (6% p.a % p.a.) The floating rate reference is defined in the swap agreement. The above example illustrates a case of fixed to floating rate swap. A swap could be done to move from floating rate to fixed rate in a similar fashion. 22

23 Please note that the above example is hypothetical in nature and the interest rates are assumed. The actual return may vary based on actual and depends on the interest rate prevailing at the time the swap agreement is entered into. FRA (forward rate agreement): A FRA is a cash settled agreement where the buyer and the seller agree to exchange interest payments for a notional principal amount for a specified period on a settlement date. FRAs are used to hedge interest rate exposure where the buyer hedges against the risk of rising interest rates, while the seller hedges against the risk of falling interest rates. Also used by speculators purely looking to make bets on future directional changes in interest rates. An FRA is quoted by the forward month in which it matures, for e.g. A 3x6 FRA is a contract maturing 6 months from today and starting 3 months from today E.g. Assume that on 09 st February 2017 a mutual fund scheme invests in a 1 month 9.00% for face value of Rs.50 crores, which is going to mature on March 09, If 1 months down the line i.e. Mar 09, 2017, the fund manager is of the opinion that interest rates are likely to decline going forward, he can enter into a 1x12 FRA (FRA rate for 12 months lending starting in 1 month from today) at a rate of 9.5% (reference rate) on a notional amount of 50 crores and on the settlement date i.e. 9 th march 2017, if the reference rate drops to 8.5%, then the Scheme receives the difference between 9.5% 8.5% i.e. gain of 100 basis points on the notional amount Rs. 50 Crores. INVESTMENT IN DERIVATIVES Investment in Derivatives: The Scheme may use derivative instruments such as index futures, stock futures, index options, stock options, warrants, convertible securities, swap agreements or any other derivative instruments that are permissible or may be permissible in future under applicable regulations, as would be commensurate with the investment objective of the Scheme. The manner of use of derivative instruments is illustrated below: Hedging & Portfolio balancing As part of the fund management exercise under the Scheme, the Trustee may permit the use of any of the instruments mentioned above or any other instrument that may become permissible in the future under applicable regulations. Such investment in Index futures, Interest Rate Swaps, Stock options, Index Options, Stock Futures and other derivative instruments will be used with the objective of a) hedging the portfolio and/or b) rebalancing of the portfolio of the Scheme or c) for any other purpose as may be permitted by the Regulations from time to time. The note below explains the concept of Index Futures, Options and Interest Rate Swaps, with an example each, for the understanding of the Unitholders. Index Futures/stock Futures Due to ease of execution and settlement, index futures/stock futures are an efficient way of buying / selling an Index compared to buying / selling a portfolio of physical shares representing an Index. Index futures/stock futures can be an efficient way of achieving a Scheme's investment objectives. Index futures/stock futures may do away with the need for trading in individual components of the Index, which may not be possible at times, keeping in mind the circuit filter system and the liquidity in some of the scripts. Index futures/stock futures can also be helpful in reducing transaction costs and processing costs on account of ease of execution of one trade compared to several trades of shares comprising the Index and will be easy to settle compared to physical portfolio of shares representing an Index. 23

24 Due to ease of execution and settlement, index futures/stock futures are an efficient way of buying / selling an Index compared to buying / selling a portfolio of physical shares representing an Index. Index futures/stock futures can be an efficient way of achieving a Scheme's investment objectives. Index futures/stock futures may do away with the need for trading in individual components of the Index, which may not be possible at times, keeping in mind the circuit filter system and the liquidity in some of the scripts. Index futures/stock futures can also be helpful in reducing transaction costs and processing costs on account of ease of execution of one trade compared to several trades of shares comprising the Index and will be easy to settle compared to physical portfolio of shares representing an Index The National Stock Exchange and the Bombay Stock Exchange introduced Index futures on Nifty (NSE-50) and Sensex (BSE 30) for three serial months. For example, in the month of October 2017, three futures were available i.e. October, November and December 2017, each expiring on the last working Thursday of the respective month Let us assume the Nifty Index was 9600 as on June 16, 2017 and three future indices were available as under: Month Bid Price Offer Price Jun Jul Aug The Fund could buy an Index of Jun 2017 as on Jun 16, 2017 at an offer price of The Fund would have to pay the initial margin as regulated by the exchanges and settle its Index position with daily marked to market i.e. receive profits/pay losses on a daily basis. The following is a hypothetical example of a typical index future trade and the associated costs compared with physical stocks. (Amount in Rupees) Particulars Index Future Actual Purchase of Stocks Index as on Jun 16, Jun 2017 Futures Cost 9610 A. Execution Cost Carry costs ( ) Nil B. Brokerage Cost Assumed at 0.03% for Index Future and 0.05% for spot stocks (0.03% of 9610) (0.05% of 9600) C. Securities Transaction Tax Nil STT for Index Futures is Nil STT for Spot Stocks is 0.10% (0.10% of 9600) D. Gains on Surplus Funds ( ) Nil (Assuming 4% return on 91% of the money left after paying (9% margin) (4% x 9600 x 91% x 13 days 365) Cash Market/ Sale Price at expiry E. Brokerage on Sale Assumed at 0.03% for Index Future and 0.05% for Spot

25 stocks (0.03% of 9700) (0.05% of 9700) F. Securities Transaction Tax STT for Index Futures is 0.01% STT for Spot Stocks is 0.10% (0.01% of 9700) (0.10% of 9700) Total Cost (A+B+C-D+E+F) Profit As the above example demonstrates the cost differential between purchasing Index Future and 50 stocks compromising Nifty (NSE-50) is a function of the carrying cost, the interest earned available to Fund Managers and the brokerage cost applicable in both cases. However, as mentioned earlier, as the Indian equity markets continues to have limitations in execution of trades due to the lack of adequate liquidity and the concept of circuit breakers, index future can allow a fund to buy all the stocks comprising the index at a nominal additional cost. Please note that the above example is hypothetical in nature and the figures, brokerage rates etc. are assumed. In case the execution and brokerage costs on purchase of Index Futures are high and the returns on surplus funds are less, buying of index future may not be beneficial as compared to buying stocks comprising the Index. The actual return may vary based on actuals and depends on final guidelines / procedures and trading mechanism as envisaged by stock exchanges and other regulatory authorities. Use of futures Futures can effectively be used as a substitute for underlying stocks e.g. if the Scheme has received fresh subscriptions and if it is not immediately possible to invest the cash so received into intended stocks, the Fund Manager can buy a Future contract and subsequently replace them by actual purchase of stocks. The reverse can be done in case of redemption of Units. The Scheme typically holds cash in order to meet sudden redemption requests. This cash holding reduces the overall returns of the Scheme. By buying futures relative to this cash holding the Scheme can effectively increase its exposure to the market while keeping the cash required to meet redemption requirement. Futures will be used to hedge or rebalance the Portfolio or as permitted by the Regulations from time to time. Option Contracts (Stock and Index) In the global financial markets, particularly securities markets, options have been, for quite many years, a means of conveying rights from one party to another at a specified price on or before a specific date, at a cost, which is called Premium. The underlying instrument can be an individual stock or a stock index such as the BSE Sensex (such options being referred to as index options). Options are used widely the world over to manage risk and generate income. While managing risks, options may be preferred over futures as they provide asymmetric pay offs. Option contracts are of two types - Call and Put; the former being the right, but not obligation, to purchase a prescribed number of shares at a specified price before or on a specific expiration date and the latter being the right, but not obligation, to sell a prescribed number of shares at a specified price before or on a specific expiration date. The specified price at which the shares are contracted to be purchased or sold is called the strike price. Options that can be exercised on or before the expiration date are called American Options, while those that can be exercised only on the expiration date are 25

26 called European Options. In India, all options are European Options. Option contracts are designated by the type of option, name of the underlying, expiry month and the strike price. Example for Options Buying a Call Option: Let us assume that the Scheme buys a call option of ABC Ltd. with strike price of Rs. 3500, at a premium of Rs If the market price of ABC Ltd on the expiration date is more than Rs. 3500, the option will be exercised. The Scheme will earn profits once the share price crosses Rs (Strike Price + Premium i.e ). Suppose the price of the stock is Rs. 3800, the option will be exercised and the Scheme will buy 1 share of ABC Ltd. from the seller of the option at Rs 3500 and sell it in the market at Rs. 3800, making a profit of Rs In another scenario, if on the expiration date the stock price falls below Rs. 3500, say it touches Rs. 3000, the Scheme will choose not to exercise the option. In this case the Scheme loses the premium (Rs. 100), which will be the profit earned by the seller of the call option. Thus for an option buyer, loss is limited to the premium that he has paid and gains are unlimited. The risk of an option writer i.e. the seller of the option, is unlimited while his gains are limited to the premiums earned. Buying a Put Option: Let us assume that the Scheme owns shares of ABC Ltd., which are trading at Rs The fund manager expects the price to rise to Rs but at the same time wants to protect the downside. So, he can buy a put option at Rs by paying a premium of, say, Rs If the stock falls to say Rs 3200 by expiry, the option becomes in-the-money by Rs. 300 and the scheme loses only the initial premium paid to buy the hedge. On the contrary, if the fund manager s view turns out to be right and the stock actually rallies to Rs. 3800, the scheme gains Rs. 300 from the stock and the hedging cost paid to buy the protection is the loss. Thus, adjusted for the hedging cost, the scheme gains Rs. 200 from the trade. The above example is hypothetical in nature and all figures are assumed for the purpose of illustrating the use of call options in individual stocks. Similarly, analogies can be drawn to illustrate the use of put options in individual stocks, and call and put options in index. Hypothetical example to further illustrate the use of options to limit downside in multiple scenarios by purchasing long dated Nifty 50 put options. Invested Amount Rs Cost of Put - 7% of hedged amount Put premium paid Rs Allocation to stock portfolio Rs Assumed current Nifty 50 Level Assumed tenure of the fund and Nifty 50 Put option 3 years 26

27 Note on Risk: The risk (loss) for an option buyer is limited to the premium paid. The Scheme will use options only for the purpose of hedging and portfolio balancing or for any purpose as permitted by Regulations from time to time. Internal controls / limits for managing risks associated with options have been set up / laid down. F. Fundamental attributes Following are the fundamental attributes of the scheme, in terms of Regulation 18 (15A) of SEBI (MF) Regulations: 1) Type of the scheme : As mentioned under the heading Type of the Scheme 2) Investment Objective As mentioned under the heading Investment Objective 3) Investment Pattern: As mentioned under the heading How will the scheme allocate its assets 4) Terms of Issue: a. Liquidity provisions such as listing, repurchase, redemption. Please refer Chapter number IV Units and Offer for disclosures. b. Aggregate fees and expenses charged to the scheme. - Please refer Chapter V Fees and Expenses for disclosures. c. Any safety net or guarantee provided. Not Provided In accordance with Regulation 18(15A) of the SEBI (MF) Regulations, the Trustees shall ensure that no change in the fundamental attributes of the Scheme thereunder or the trust or fee and expenses payable or any other change which would modify the Scheme and affect the interests of Unitholders is carried out unless: A written communication about the proposed change is sent to each Unitholder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of the region where the Head Office of the Mutual Fund is situated; and The Unitholders are given an option for a period of 30 days to exit at the prevailing Net Asset Value without any exit load 27